employee retirement plan

4 options for offering an employee retirement plan

Drive-thru:

  • Employees without retirement savings plans tend to stress about money.
  • Offering a retirement savings plan can help you lure top talent.
  • Several options exist for offering your employees retirement savings, for any size company.

Chances are you want your employees in tip-top form when on the job. That also means keeping them as stress-free as possible. Unfortunately, the fear over their financial futures may be weighing them down constantly.

According to the 2017 Retirement Confidence Survey (RCS) that polled 1,671 U.S. individuals aged 25 and older, three in 10 people feel stressed about being unprepared for retirement. Additionally, three out of 10 admit they worry about finances at work.

There’s a potential solution to these concerns. It turns out the study also found that those who participated in retirement plans were also more confident about their futures.

Providing yourself and your employees with a retirement savings plan can be a boon for the entire company. In addition to giving everyone a chance to save for the future, a retirement plan can help you attract top talent.

Employee Retirement Benefits

“Construction is a business often fraught with high turnover,” says Scott Eichler, vice president of institutional wealth management at Newport Wealth Advisors and author of Don’t Play Chicken with Your Nest Egg. He crafts small business retirement plans.

“Offering a retirement plan when many of your competitors aren’t can help you cultivate and keep seasoned employees,” says Eichler.

Retirement plans also come with tax advantages, says Beau Henderson, a retirement consultant and author of The Rich Life: 10 Investments for True Wealth. “In a cyclical market segment like construction, it’s important for the business owner to maximize tax advantages, and 401(k)s offer tax advantages to both the business owner and employees.”

Following are four possible options for offering your employees a retirement savings plan.

SIMPLE IRA Plan

A SIMPLE IRA Plan (Savings Incentive Match Plan for Employees) is an inexpensive option for companies with 100 or fewer employees. This plan enables employees and employers to contribute to traditional IRAs set up for employees.

The employer must contribute to each employee’s IRA on an annual basis—through matching contributions up to three percent of pay, or through a two percent non-elective contribution for eligible employees. With the latter plan, employees receive an employer contribution even if they don’t contribute themselves.

Simplified Employee Pension Plan (SEP IRA)

A Simplified Employee Pension (SEP) is ideal if you want to contribute to your retirement plan while adding to your employees’. The business owner adds funds each year to traditional IRAs set up for their employees. The employer contributions can be for up to 25 percent of each employee participant’s pay.

Unlike other retirement plans, the SEP plan has no setup fees or operating costs. A business of any size can use it.

Designated ROTH 401(k)

A designated Roth 401(k) offers participants the ability to save a significant amount of money. As of 2018, employees can save up to $18,500, those 50 and older—an additional $6,000. The employer must set up a designated Roth account for holding the contributions and maintain separate accounting records for the account.

When employees withdraw funds at retirement, they aren’t taxed, providing that the withdrawals are qualified distributions.

Defined Benefit Pension Plan

A defined-benefit plan is an employer-sponsored retirement plan. The employer administers portfolio management and takes the investment risk for the plan. This plan type requires hiring an enrolled actuary to compute employee benefits based on several factors such as salary history and length of employment.

While a defined benefit pension plan tends to involve more work and expense for the employer, the payback can be significant. For one, such a plan allows substantial contributions for older participants.

“A defined benefit plan is a tool that can create an overwhelming value for the employer,” says Eichler. “Company owners can use their business operations to help generate additional returns for their retirement while helping the company operate more efficiently. For instance, an employer can use a defined benefit plan to help employees buy the company over time, which can create six-figure write-offs. Owners can also buy their own building with assets in a defined benefit plan.”

Sign up. Stay fueled.